Access to a range of sources for foreign investment would deliver important benefits to Australian agriculture, such as improved market access, reduced price volatility, a generally lower cost of capital and technology transfers. All of these will be critical if Australia is to reap the benefits of predicted increases in demand for food over coming decades.

Despite the forecast strong increase in the world’s demand for food, Australian agriculture faces a fiercely competitive market for bulk commodities, which make up most of our production.

The Australian Bureau of Agricultural and Resource Economics and Sciences predicts that global food demand will increase by 77 per cent in the next 40 years but Australia’s share of global food exports will fall from 4 per cent to 3 per cent.

Mick Keogh of the Australian Farm Institute has found our agricultural production is among the most volatile in the world, and agricultural production is the most volatile sector of the economy.

To capture the benefits of increased food demand, farmers and processors need to invest in productivity improvements and the development of underutilised land.

But these investments must be made as farmers face climate variability, climate change policy costs, reduced public investment in R&D, and in commodity markets that are highly volatile.

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Company Profile

The $6 billion acquisition of Canada’s Viterra by Swiss commodities trader Glencore provides an international perspective on Australian agriculture. It was reportedly financed from Glencore’s cash reserves and existing credit facilities. The largest listed agricultural company in Australia,
GrainCorp
, has a total market capitalisation of $1.4 billion.

It is clear that to maintain market share agriculture needs access to massive balance sheets and capital. Raising debt is one option and, given the ebullience about the sector, it could be raised. But debt financing alone will increase risks.

The types of intervention favoured by the National Party, such as the single desk for wheat and the wool reserve price scheme, were based on farmer ownership and control. But that meant inventory financing and price risks were borne by growers. The policies ended in some of the biggest losses of wealth in the nation’s history.

The National Party’s current foreign investment policies threaten to condemn farmers to repeat serious policy failures of the past.

Overseas policies are relevant. A recent source of increased volatility in agricultural markets has been more government intervention to deal with food price volatility and the civil unrest it caused.

Self-sufficiency does not actually lead to increased security. And it is costly when scarce resources are diverted away from more productive uses in the economy to producing food – food that can and should be purchased from countries that have a competitive advantage, such as Australia. Pursuing self-sufficiency also increases price volatility as the Indonesians are finding out: beef prices are rising due to restrictions on Australian beef and cattle.

If sovereign risk is one of the major threats to local agriculture, foreign investment is one of the best ways to deal with it. Foreign governments, who have directly invested in Australia through sovereign wealth funds, or have constituents with an investment in Australia, are less likely to pursue policies that would reduce the value of these investments.

Australia agriculture, in conjunction with government, must convince our major trading partners their food security is best managed by investing in a stable, profitable and productive agricultural sector.

The current foreign ownership debate only pushes our trading partners towards more barriers to trade, which are detrimental to the interests of our farmers who face and will continue to face intense competition in overseas markets.